The Reality Of Startup Funding: Finding The Ideal Investors

Finding investors to fund businesses is a reality that many entrepreneurs face early in startup development. Networking, marketing, and industry knowledge all come into play during the investor search, but finding the ideal investor isn’t always about the funding they can offer; in fact, it’s more about alignment and understanding.

The three telltale signs of an ideal investor in terms of personality are the following:

• Aligned values

• Easy to work with

• Long-term partner

While finding an investor that exhibits these key traits is essential, he/she should also offer tangible value that aligns with your long-term business goals, which are:

• The right network/connections

• Industry

• Business Model

• Functional Area

• Geographic Relevance

Raising capital as a startup always begins with funding, and there are various sources where you can receive your upfront capital. The golden rule when looking at funding options is to look at all types of funding equally so you can capitalize on every opportunity. There are five types of funding that caters to the needs of startups:

• You + Friends & Family

• Revenue

• Grants & Loans

• Crowdfunding

• Equity

Grants and loans are usually more practical compared to funding coming from your own network because you can apply for rates that you think matches your requirements. However, there are a few important factors to consider if you’re planning on getting a grant or loan.

Grants

Pros

• No dilution

• Link to specific projects and opportunities

Cons

• Time & effort to apply is considerably long

• Restrictive covenants such as guarantees

Loans

Pros

• No dilution

• Transactional based debt instruments

Cons

• Repayment terms and conditions

• Impact on future rounds of debt or equity financing

Besides grants and loans, equity crowdfunding is also a popular funding option. In fact, the emergence of online crowdfunding platforms such as Kickstarter and Indiegogo in recent years helped skyrocket this method of funding.

Equity Crowdfunding

Pros

• Investors can easily relate

• You have a budget to spend

• Opportunity to establish a tightly-knit community of investors

Cons

• Varied investor types

• Most expensive fundraising activity

• Different perceptions from investors

As a startup owner, you should always see funding as a responsibility. Most of us see it as the first step in generating profit, but often forget the obligations to the different parties involved in the funding process. Always remember that funding benefits both your business and your investors, so always keep your end of the bargain to avoid problems and liabilities while forging strong networks.